Tuesday, October 9, 2012

Good = Profits?

So I have been working on my concept that greed is good which the few that read my blog have seen. I will continue posting more on my opinion and ideas of greed but found an interesting article that many of you will enjoy and is very different from my opinions. So here is the link to the article, http://www.linkedin.com/today/post/article/20121009105715-5506908-what-if-doing-good-was-good-for-profits.
This article is very interesting due to the fact that it highlights how companies can do good in CSR (Corporate Social Responsibility) and make a profit from being good. My spin on this thought is that again companies are using greed disguised as good. Yes companies can do good and make a profit, but if they are being good because of the profits then I would consider them greedy which is a good and natural thing.

Besides greed, I do agree that customers choose to purchase products from companies that have a good image. For example I love Starbucks due to their coffee, customer service, atmosphere, a long list of other reasons, and the fact that they do good. (SIDE Story: I had a bad experience at a Starbucks in Ann Arbor and complained to the head quarters. The company apologized and sent me a voucher for a free coupon. I know many companies could care less but this experience made me a stronger customer, especially since I found out Barnes and Noble Starbucks aren't ran by them which is easily noticed.) Anyways back to CSR, Starbucks has an image that they help small farmers and care about the planet which makes people choose them over other companies. After Googling to see if they have any articles of CSR I found a web page on their site which explains in lots of details why they are good (http://www.starbucks.com/responsibility/learn-more/goals-and-progress).




Overall I agree with the article What if doing good was good for profits? in that companies should be doing good to attract customers since business is all about making customers happy and people love to feel like they are good.

As a king of Thailand (Bhumibol Adulyadej) once said, "A good person can make another person good; it means that goodness will elicit goodness in the society; other persons will also be good."

Thursday, June 21, 2012

Greed 1.1


Everyone I have talked to agrees that greed is bad but I would strongly disagree. To me greed is a natural law and cannot be broken as gravity is a natural law that can also not be broken. We can fly planes which seem as if they are breaking the natural law of gravity but in reality they are using other natural laws to create this allusion that gravity is broken. This example of gravity is similar to greed in the fact that people think they can overcome greed but in reality are just delusional and have not overcome greed but are just playing into greed unknowingly. Greed comes in five degrees and matches Maslow’s Hierarchy.

The first level of greed is physiological needs. Every living thing has a desire to live and therefore seeks to obtain food, shelter, and/or the basic needs to live. If one was selfless they would just give away all the food and shelter they found leaving them to die. Therefore everyone must be selfish at the base level during their lives. Suicide would be the exception to this rule. Those that commit suicide are giving up life because in one way or another they feel that they are unable to obtain what is needed (needed is used in a lose sense) to live.

                The second level is safety and security. People are greedy and seek to obtain safety and security through health, employment, property, family, and social stability. These needs are always taken to the furthest extent to help secure the physiological needs and make life easier. Being healthy is a way to make sure that you can fulfill the physiological needs to the highest capacity (meaning excess or in what is required to live one more day). Employment ensures that a person can afford to buy physiological needs such as food, clothing, and water. People will always look to maximize their earnings as well as find a stable job so they can attempt to maximize their needs at all levels of Maslow’s Hierarchy as well as fulfill the need of security. Property is not needed to live but, when talking about land, it is wanted to help protect their other property in the form of things that are needed such as food and things that are not needed such as toys or tools used to meet their physiological needs. Family and social stability are maximized by individuals based on the amount of money that they can obtain. I would argue that many people don’t have kids or have small families because they evaluate their time and money and spread it so they can maximize their personal pleasure. Families and social stability bring pleasure to the individual through feeling needed or through a parent taking credit as to raising someone like themselves. Many parents feel they have failed when their children have chosen a different life path than what the parents have chosen for themselves. Social stability or, as I view it, having friends makes individuals feel needed or important since friends are people who support you emotionally and/or physiologically. Safety and security are not needed but everyone seeks to have safety and security as a way to make life easier which is obtaining things that are in excess, meaning greed.

                The third level is love and belonging. All humans seek friendship and love. We seek to be accepted by others as it is needed for psychological well being. Can one define how many friends, family, or lovers one needs? I would argue that humans constantly seek more in all three categories. It is nice to have friends and we are always seeking the acceptance of those around us. The more people that accept us the better we feel about ourselves. Family acceptance is also sought after. An example is when children imitate their parents and want to be like them since similarities can lead to acceptance by others. The category of lovers can be quite complicated since this varies from society to society. In the United States some seek many casual partners and some seek a mate for life to fulfill acceptance and sexual intimacy. Either way people are seeking to gain more partners or are seeking deeper emotional connection. When humans feel that a connection no longer exists many of us seek new partners and new relationships. Over time in the United States divorce has become more acceptable and people move on from one relationship to another seeking “more” of a characteristic within a relationship. We are all greedy in either the quantity and/or quality of intimate relationships.

                The forth level is esteem. The last level of love and belonging, I believe, is tied to esteem in the fact that acceptance (similar to respect) builds self-esteem and confidence which is also obtained through achievements. Humans want to feel as if we have value and we define our value through achievements and acceptance of others. All humans have different achievements but as we achieve our goals we gain satisfaction and feel we are valued. We gain pleasure from the feeling of being accomplished and valuable, and seek more of this feeling by setting new goals or planning new ways to gain greater acceptance from people we know or by looking for new people to gain acceptance from. Depending on your beliefs, humans are either designed from God or from natural selection to seek pleasure, and gaining esteem is one of the many pleasures we seek. Why would someone stop after a small amount of pleasure is gained if they can gain more; the answer is that humans are greedy and usually will seek more pleasure as long as there is a positive net gain to them.

                The fifth and final level is self-actualization. This includes morality, creativity, spontaneity, problem solving, lack of prejudice, and acceptance of facts. This last level in my opinion is mental stimulation. When someone finds something that stimulates their desire to reach self-actualization they feel as if they are better than others which gives them a feeling of accomplishment or self-actualization. Once we experience success through self-actualization we seek more because it is pleasurable. There is no limit to how much pleasure we should gain which means that humans are greedy.

This last level is what I consider the Greed Block. The Greed Block is my theory on why people think greed is bad. People think greed is bad because they feel they have moral obligations to mankind and/or God. They feel that if they follow these morals and defy the natural instinct to be greedy that they rise above the natural human impulse and are better people because they can put the whole above the individual. The fact that they are trying to defy a natural law is illogical and makes society worse off. To prove society becomes worse off can be seen in the Invisible Hand theory by Adam Smith that describes how individuals must be greedy to make the whole (society or the economy) better off by creating an equilibrium.

Example: For this example we assume more is better which, by definition, greed is. I would argue that all humans would prefer more of a good thing and less of a bad thing. The best example is a game of tug of war between two people. To measure how well off each person and society (the two players in the game) are in each scenario we will use utility. Utility is an economic term used as a unit of measure for happiness. The higher a person’s utility, the happier they are. Utility is not an exact measurement and is only used for theoretical problems.

Scenario A: If one person has the Greed Block and just takes the very basics of food and shelter they will allow the other person, who follows the natural law of greed, to take more than their fair share. The Greed Block person will be pulled over the line and will be much worse off than the greedy person. The Greed Block person was attempting to be selfless which would help the society of two to become better off. The end result is that the utility of the greedy person is very large and the utility of the Greed Block person is very small. Now this end result is neither good nor bad but logically seems wrong if both parties and their society could have been better off as a whole. A mathematical example of Scenario A would be that the Greed Block person had a utility of 10 while the greedy person had a utility of 90 which would be a total of 100.

Scenario B: If there were two Greed Block people playing tug of war then they would both slightly pull at the rope but realize they were happy as is and would let the rope go limp. The mathematical example of Scenario B would be 10 for each person for a total society utility of 20.

Scenario C: Now if both people in the tug of war were equal and were both greedy people there would be a struggle and a more even distribution of utility. A mathematical example of Scenario C would be 60 on both sides for a total utility of 120.

The mathematical examples of the three scenarios show that a society of greedy people would yield the highest utility. (This has not been proven through research at this point but I would like to conduct research to support this theory. There could be research out there that supports this but I have not found it thus far.) The Greed Block people’s goal was to create a society where we all benefited by not being greedy. Their end goal made society worse off and was not successful since society could have been better off and their goal accomplished if they would have followed the natural law of greed. I view society as a web of ropes that all intersect at the middle. As each person pulls on their end we as a society maximize our personal utility as well as the total utility of the society. I will continue this tug of war example in future writing about the concept of greed. I know not everyone has the same strength in tug of war and in life which will be discussed in future writings.

In conclusion of this section on my Greed series I see a strong connection between Maslow’s Hierarchy and the concept of greed as being a good and a natural law. Maslow’s Hierarchy has different levels of needs for humans which can be viewed as levels of greediness. The more greed each individual has the better off the society will be. Each human should experience all levels of Maslow’s Hierarchy to the fullest extent possible through their greed. Through the theory of the Invisible Hand and my example of a tug of war, greed makes a society better. The goal of an individual should be to maximize the well being of one’s self based on the natural law of greed. Based on greed we should maximize utility to the greatest extent possible. The next paper will be on why laws are required within a society and how government and greed go together hand in hand to create a better society.

Thursday, May 3, 2012

Greed 1.0

Introduction to the Greed Series

     I am going to be exploring the concept of greed by writing a series of blogs and getting feedback from those of you reading as well as from the people around me. Through my recent readings of finance, economics, and the news I have begun to question whether greed is good or bad. Since I am pursuing Financial Engineering and have read many news articles about how bad and greedy Financial Engineers are, I have started to question the society we live in. So please feel free to read the first paper below and give your feedback.

This photo is courtesy of InvestingCaffeine.com

Greed - 1.0

     The word greed has a negative connotation. First we must define greed so that we can discuss the concept of greed. According to Merriam-Webster online dictionary, greed is “a selfish and excessive desire for more of something (as money) than is needed.” That definition is basic and easy to understand at first but the question then becomes what is needed? Is needed food and shelter? Or is it more than that? Is love needed? The question of needs can become controversial and we will therefore assume that it is food and shelter so that we can continue on our exploration of greed. Greed dates back to the biblical times and is condoned by Christians and many other religions as a sin. The question I would like to explore is why is greed bad? Can we all be greedy and be happy? Or is greed bad for a society?

Wednesday, March 28, 2012

What is Financial Engineering?

A financial engineer is someone who uses computer programming, finance, and mathematics to analyze financial assets. Many financial engineers specialize in specific areas of finance such as trading, risk management, asset management, and corporate finance. Some popular positions are algorithmic trader, derivatives trader, strategist, finance software engineer, proprietary trader, hedge fund managers, and risk manager. Risk management is a very broad area which could be a job for an investment bank, hedge fund, or any financial or corporate institutions who is looking to manage their risk in financial assets.
Financial engineering is relatively new and the father of financial engineering is Fischer Black. There are about 22 master programs in North America and data about these programs and rankings can be found on QuantNet.com. The field has been controversial in the news lately since most derivatives are created or transacted by financial engineers.
For anyone who is interested in learning more about the field I would recommend reading two books. The most influential book I have ever read is a book about Fischer Black called Fischer Black and the Revolutionary Idea of Finance. Fischer Black based his life on the CAPM model and the pursuit for knowledge. Financial engineering is all about creating new models and theories which can be seen in Fischer Black's life. If you are considering financial engineering and don’t eat, sleep, and dream about finance I would not recommend pursuing it. The average salary is fairly high and the growth potential is good but only for those who are dedicated.


The second book is My Life as a Quant by Emanuel Derman. The book is about Emanuel Derman’s life and how he became a quant. He like many financial engineers that helped start the field were from quantitative fields such as physics. He now teaches at Columbia University and has contributed to the field in many ways as a professor and practitioner.


The road to becoming a financial engineer is long and hard. A master is a minimum requirement for quant positions at investment banks and other financial institutions. The programs are getting more competitive every year as students from around the world are competing to become financial engineers. There are also more programs being created to meet the high demand for financial engineers but be wary since where you go matters just as much as what you know and who you know.

Please feel free to leave comments or ask questions.

Saturday, March 3, 2012

Dimitri Bianco Update

Below is a copy of the letter that has been sent out to my close contacts about what I am doing in regards to Financial Engineering.


Everyone,

            As many of you know after graduating from WSU I have been pursuing a career as a trader on Wall Street. I applied to over 170 jobs and have networked with many people. I learned from many rejections as well as advice from network contacts that I needed more education in financial engineering as Wall Street shifts toward quantitative analysis. I applied to seven schools and have been accepted to the Claremont Graduate University and the University of Michigan. I will be accepting the offer from the University of Michigan and will be starting school July 2nd.

            I would like to give a special thanks to those that wrote recommendation letters; Steve Matthews (family friend and corporate lawyer at PRS), Dr. Donna Paul (my corporate finance professor at WSU), and Dr. Gene Lai (my financial modeling professor at WSU). I would also like to thank Ron Vodika for changing the way I look at life and gaining a desired career; Nathan Soper for giving advice, a job interview, and helping me to create a great resume; Emanuel Derman’s book My Life As A Quant which has motivated me by his life as an example; Fischer Black’s life and ideas as portrayed in the book Fischer Black and the Revolutionary Idea of Finance which has been the most influential source on my outlook of life and education; my parents for a place to stay, a job, and for being my parents; my many networking contacts that have made impressions on me; and last the most important, my wife Arielle for supporting me and motivating me when times looked grim. 

Again thank you to everyone for helping me get to where I am in my journey. I will send out major updates as I progress.



For updates, my thoughts, and research please visit my blog biancomarketresearch.blogspot.com


Sincerely,
Dimitri Bianco


Arielle and myself at WSU.
Special thanks to Matt Holmes for the taking the picture.


Arielle and I are very excited to move to Ann Arbor, Michigan!

Thursday, February 9, 2012

Irrational Financial Advisors

     An interesting approach that I have never thought about is the CAPM (capital asset pricing model) with a lifetime of investing. Typical financial advisors will tell you to load up on risk when you are young and then ease off of it as you get older. One might think this makes sense but it is a mirage. The concept that when you are young you expect to have more time and could make up a loss if one was taken. The question is why you would take that risk if no additional return is granted. According to the CAPM which is widely accepted, diversification of risky assets reduces unsystematic risk (the risk which an individual stock contains that can be diversified away. In contrast is systematic risk which is also called market risk and cannot be diversified away). So why should an investor stock up on risky assets such as stocks at a young age and bear more risk than is preferred? It would make more sense to develop a well balanced portfolio of stocks and bonds and hold a portfolio that matches ones risk preferences. An individual’s risk preferences might change over one's life but betting that markets will be positive long enough for you to recoup your losses is irrational. Investors, especially average people should not take bets that they do not understand. A market can crash at anytime and as Maynard Keynes once said, "Markets can remain irrational longer than you can remain solvent." Don't be fooled by high end investment banks.
Fischer Black

The inspiration for this article is based on the thoughts of Fischer Black. For those of you who don't know who Fischer is, he is the father of financial engineering and one of the brightest minds the world will see. He was many generations ahead of his time in the thoughts he produced. He is still very controversial due to his forward thinking. He is also the only person I know that believes as I do in a general equilibrium. I hope that this article makes you think twice about your investing practices.

Sunday, January 29, 2012

Economic Thought

As Adam Smith states specialization is key to increasing productivity. The real question is how far should this idea be taken? As globalization increases and economies continue to grow larger and larger should specialization be divided by country, state, city, or corporation?

My thoughts on this topic are as clear as most economics. I feel as globalization occurs and economies continue to grow the spectrum of specialization should continue to narrow. If one was able to graph this idea it would look like a concave function. As civilization began and many people never traveled outside of their village I can see the idea of corporations or families trading or individuals within families trading due to specialization. As economies grew and globalization started to progress countries could benefit from trading those goods that they were good at. Many factors could dictate which goods or services a country was efficient at but the main factors being raw materials and available labor. Now as globalization continues and the movement of goods becomes cheaper and more efficient, specialization at the corporate level seems to be more efficient than other spectrums. I am not stating that only one spectrum is present but the most efficient form of specialization seems to occur more at the present time and in the future with corporate specialization.

This theory seems accurate to me but is my graph right or is it different? Maybe it cycles.